The legal reforms proposed by the Cyprus Interior Minister Neoclis Sylikiotis are not a cure-all solution to the many Title Deed problems. Those who have been deceived into buying mortgaged property will continue to remain at risk unless the Government acts to protect their interests.

ALTHOUGH the property industry has welcomed the radical reform of the whole system for approving and registering built property and issuing title deeds, questions remained yesterday as to how many individual title deeds will not be issued because of a developer’s inability to pay off mortgages on the land.

“A market that is slow and illiquid will not be improved by legislation. It needs a solution to the fact that there are developers who are over-extended and banks that are over-exposed,” a senior banking source told the Cyprus Mail yesterday.

“There are good developers, who haven’t bought expensive land over the last two years and have limited their borrowing to what they can service. On the other hand, there are those who have bought land expensively, have borrowed too big a proportion of their funding needs, are less professional and can’t complete their current projects. There is no legislation which can solve that problem“, the source said. “We have been prudent in our lending, but some banks have not“, he added.

Savvas Georgiades, Aristo Developers’ Finance & Operations Director, said: “Generally, we welcome the proposed legislation as a positive step forward“, adding: “We believe that a simplification of the whole process will help enormously.”

On the question of outstanding mortgages, Georgiades said: “We have always made proper provision for paying our obligations out of sufficient operating capital. I don’t know which other developers might have over-extended themselves, but certainly there will be a problem for some to pay off their debts, given the slowdown in the market.”

He said as members of the Land Developers Association, Aristo did not think there was a large problem.

“We like to think that some 90 per cent of titles are being blocked by bureaucracy rather than a developer’s inability to repay mortgages“, he said. “Unfortunately, there are companies which have not been financially responsible, and have left some buyers exposed.”

Georgiades said the system in Cyprus “is not fundamentally bad. It just needs updating. The sudden expansion of the market over the last ten years or so has meant that the system did not keep up, which has resulted in today’s problems,” he said.

There are currently around 130,000 units (houses, flats, hotels) without title deeds, while only 20,000 applications for title deeds have reached the Land Registry. This represents a lot of uncollected revenue for the state in terms of tax and duty on transfers and other costs.

Finance Minister Charilaos Stavrakis said last week that the state collected a total of €700m in revenues from property sales in 2008, while the forecast for 2009 was less than half that amount.

Sylikiotis has outlined a number of legal proposals designed, among other things, to tackle the problem of property-buyers who cannot sell because they do not have the title deed.

The new proposals include the introduction of a completely new system for issuing title deeds which will be divided into three categories, as well as penalties for developers who for their own reasons delay applications for title deeds.

The current drafts of the legislation provide for the relevant government departments to move the process forward on their own authority. They will also be able to impose fines in cases where owners cannot show good reason for failing to meet their obligations, thereby preventing the issuing of title deeds in the name of buyers who have met all their obligations.

Asked to what extent the new legislation would protect a property owner from being pursued by a bank for non-payment by a developer of a mortgage Land Registry Head Andreas Christodoulou said that this would be a private legal matter.

“The law or the state cannot force developers to pay off their mortgages. In a situation where a house-owner is being pursued by a bank for non-payment of a mortgage on land, it’s up to the house-owner to go to court“, he said.

Christodoulou did not underestimate the scale of the task: “There will be difficulties and problems, but we will gradually solve them. Before we took this initiative, no developer was approaching us to solve the title deeds problem. Now, we are in contact with 25,000 developers and are tackling the problem.”

One of the proposals is to create a three-tier system of title deeds, though ministry officials acknowledge they are not certain whether the system will pass legal scrutiny.

The first type of deed will be a “complete” title deed, of the kind currently being issued. The second type, referred to as an “incomplete” title deed, will be issued with an appendix noting any unauthorised minor extensions or modifications that go beyond the issued permit, or in cases where it is not possible to identify the property boundaries for which a single unit of the whole project has exclusive rights.

The obligation to correct these “exceptions” would be determined on a case by case basis, working on the principle that whoever is to blame for the exception will have to correct it.

Town-planning Head Christos Ktorides said that owners of properties with an “incomplete” title deed will still be able to mortgage or sell them. Christodoulou also said that the Attorney General has been asked to clarify what happens to the obligation to correct any exceptions in the case of a property being sold before they are corrected.

The third type is being called the “limited” title deed, which will also have an appendix recording substantial unauthorised changes or extensions. Owners of property with this third type of deed will not be able to sell or mortgage their property, but Christodoulou said that the new legislation aims to ensure at least that “there is no danger of anyone losing their property“.

On the plus side, the proposed legislation offers more scope for differentiation. Ktorides said that if for example two units out of an 80-unit development only qualify for a “limited” title deed, henceforward the other 78 units will not be burdened by this non-compliance.

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